When Muhtar Kent looks over the international giant that is the Coca-Cola Co., where he was named president and CEO in July, he sees a soft-drink empire spanning 203 countries — more than belong to the United Nations — and offering up an astounding 1.5 billion beverage servings daily.
But the 56-year-old Turkish-American CEO doesn’t see the glass as even half-full. The glass he sees is more than 90% empty. “We … have just scratched the surface,” he said at a recent Wharton Leadership Lecture. Those daily servings of Coca-Cola products are just “a portion of the more than 40 billion drinks that the world enjoys daily — so we have a less-than 10% share of the global hydration market. This is how we see our opportunity.”
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Although the worldwide economic crisis clearly weighs heavily on his company, Kent says he will remain focused on moving Coca-Cola toward an ambitious goal: to increase global annual revenues for the firm and its more than 300 independent bottlers from $650 billion now to more than $1 trillion by 2020.
To create a vision of how to achieve that, Kent wants Coca-Cola to focus on what he calls “the new equilibrium” that he sees developing in the marketplace over the next 12 years, which means dealing with increasing costs for energy and foodstuffs, but also rapid urbanization — especially in the fast-growing markets of China and India — and a global middle class that should swell by one billion new people.
Kent predicted that “turbulence is going to be pretty much the norm … in the years ahead. I think that the days of calm waters are going to be gone for some time, but again, that doesn’t mean only turbulence; that also means tailwinds. In a way, in today’s world, every headwind produces some kind of tailwind.”
So far, the world’s largest producer of soft-drink syrups, juices and related products has seen little direct harm from the economic slowdown. Its recent third-quarter earnings report — the first to cover Kent’s period as CEO — showed healthy sales growth of 9%, with new revenues in emerging overseas markets more than offsetting the sluggish North American market. What’s more, analysts are projecting that savings of as much as $500 million a year from a current restructuring program — as well as the steady growth of products like Coke Zero and Energy brand vitamin water — should keep Coca-Cola well in the black through 2011 and beyond.
Turbulence: A Time to Focus
While taking a long-term optimistic view, Kent — who recently had an opportunity to discuss the fiscal crisis one-on-one with Federal Reserve chairman Ben Bernanke — did not attempt to sugarcoat global economic realities that have sent stocks tumbling. That includes Coca-Cola, which has seen shares plummet roughly one-third since February. “It is a tough environment out there,” he said bluntly. But Kent noted that he and Bernanke agreed that “the American economy — as well as the global economy — could come out of this crisis stronger, for many reasons, and I’m a firm believer that times like this are not really an excuse to sit back and ride out the storm. Turbulence is a time to focus on what matters most to your business…. It is a time when waste and duplication need to be shed, and it is a time … for a marketing company like Coca-Cola to continue to communicate with its consumers.”
For Kent — the son of Turkish diplomat Necdet Kent, who was acclaimed for rescuing Jews during World War II — his bullish views have been shaped by his three decades in the beverage industry, which he joined in the late 1970s after his education in Great Britain and military service in Turkey. He recalled that many Americans, under siege in the 1970s and 1980s from rising gas prices and economic competition from Japan, thought the economy was falling apart back then as well. “But the system did not collapse,” he noted. “America came out of that crisis so much stronger because … this country and this nation did what it always does best — reinvent itself and innovate.”
Kent recalled some remarkable achievements in the face of adversity during his early and middle career. He successfully guided Coca-Cola’s operations in Russia when that nation’s economy nearly imploded in 1998, and he managed to expand the reach of Turkey’s Efes Beverage Group — an independent Coca-Cola bottler he ran from 1999 to 2005 — despite an alarming hike in interest rates in Turkey in 2001. He found himself overseeing Coke’s operations in Eastern Europe in 1989, when the Berlin Wall finally tumbled and he rushed to help open 24 new bottling plants across the region in just 30 months, taking Coca-Cola and its related brands from being an oddity reserved only for Western diplomats to the market leader in the former Iron Curtain nations. During his six years at Efes, he similarly took a local beverage company and expanded its reach from the Adriatic Sea to China. “The lessons for me were respect for cash, respect for governance and [respect] for executing by building up an emotional network with people,” he said.
The experience also put Kent prominently on the radar screen at Coca-Cola’s Atlanta headquarters, where operations had bogged down after the unexpected death in 1997 of legendary CEO Roberto Goizueta, whose 16-year tenure saw the value of Coke’s shares grow from $4.3 billion to $152 billion. The firm stagnated in the interim under a series of new chiefs; in 2005 Kent returned to run Coca-Cola International, soon becoming COO and then CEO.
“The concept of winning had left the system for most of those five or six years” after the Goizueta era ended, Kent suggested. He explained that his first priority upon assuming the helm at Coca-Cola — based upon what he had witnessed in other leaders in business and in government over the previous 35 years — has been to develop a new broad strategic vision for the Coca-Cola brand. Kent said the leaders he is striving to emulate “had the ability to create a clear and compelling vision and they had the ability to articulate and communicate it in a simple way.”
The key focus of a series of intensive meetings that Kent has held so far with his top bottlers from around the world, and also with his key management team, has been his notion of “the new equilibrium” that he believes will pose unprecedented challenges and exciting opportunities for global brands such as Coca-Cola. He sees two big obstacles ahead. One is dwindling energy supplies and higher fuel costs, which he predicts will continue for the next dozen years despite the current short-term collapse of crude oil prices. The other is a shortage of critical food commodities. “The introduction of fuels like ethanol, along with erratic weather because of global warning, will be partly responsible for food shortages as well as rising prices for commodities. That’s going to put incredible pressure on the supply chains of countries. Constant scarcity will be the norm, and therefore supply chain management is going to be critical.”
Kent’s goal is for Coca-Cola to make strategic improvements on that front, as well as on renewable sources of energy and supplies — an area in which the giant company works closely with environmental non-governmental organizations (NGOs). One of Coca-Cola’s current projects involves a landmark 2007 agreement between the firm and the World Wildlife Fund to conserve water in every step of the supply chain, beginning with the harvesting of sugar cane.
However, Kent also believes that a company that can manage these challenges will find enormous opportunities in emerging markets, especially as the number of people living in cities in China, India and elsewhere in Asia will surpass the urban populations of the United States, Europe and Japan by 2020. Related to that, the Coke CEO said he believes recent projections that see the global middle class swelling by one billion despite the current economic crisis. “Essentially, we feel that unless you are prepared for these trends, you cannot really take advantage and leverage the opportunities you have as a business — and certainly we feel we have that opportunity.”
Recently, Coca-Cola sought to jump start its opportunities in China with the $2.3 billion purchase of China Huiyuan Juice Group, that nation’s most successful producer of fruit and vegetable juices. While the Huiyuan deal — still awaiting approval under a new antitrust law in China — is the latest in a series of overseas acquisitions by Coca-Cola, Kent said his principal aim remains to grow the company organically. “I think that organic growth is the oxygen of our system and we can never abdicate growing organically what we have in hand — acquisitions can never be a replacement. When we see opportunities around the world like the juice company Huiyuan, or with organic tea, we will go out and acquire them — but we track organic growth religiously.”
Diversity as an Asset
Kent also expressed optimism that Coca-Cola will be able to flourish in emerging markets because of the remarkable diversity of the company’s management; he noted that the top 10 executives at the Atlanta headquarters include natives of Australia, the United Kingdom, Turkey, France, Colombia and Ireland. Kent, who was born in Turkey and educated in London, said 52 nationalities are represented in the company’s headquarters building. “We look for leaders who … are not trying to take the lifestyle of Munich to Mumbai, and who … operate creatively and effectively outside of their comfort zone.” He added that Coca-Cola is now seeking to address a lack of gender diversity, after he learned that there are only two female senior executives and just two women in charge of bottling companies around the world, none of them in the United States.
During the question-and-answer session, Kent was challenged on the value of water versus soft drinks for hydration. Nonplused, Kent responded, to applause: “Water is boring.”